Obamacare Ruling May Have Just Killed State-Based Exchanges

Now that the Supreme Court has ruled that health insurance consumers can receive federal subsidies regardless of their state’s role in running their insurance market, fewer states may stay in the game.

When the Affordable Care Act passed in 2010, most people expected that each state would want to run its own health insurance marketplace. That never really happened, as many states opted to let the federal system, HealthCare.gov, do the work for them. Many of those states that did try running their own marketplaces are starting to think twice.

Now, with the Supreme Court ensuring that every state’s consumers will have equal access to federal subsidies, it is becoming clear that more of those states will revert to a federal system for enrolling people in health insurance.

“There may be a little bit of buyers’ remorse going on in some state capitals right now,” said Sabrina Corlette, the director of the Center on Health Insurance Reforms at Georgetown University. She said states underestimated the difficulty and expense of building and maintaining state marketplaces. Now, she said, many officials are asking: “What did we get ourselves into?”

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The view outside the Supreme Court on Thursday.CreditDoug Mills/The New York Times

As the law envisioned, state exchanges would provide an opportunity for state insurance regulators to oversee their markets, a role they have long performed. The state exchange system would also allow a greater degree of policy flexibility and control, so state officials could customize the marketplaces for local conditions. What few people grasped was the technical and logistical challenge of building a complex website and customer service operation from scratch.

“Certainly, one of the lessons learned was that it is much more difficult than was expected,” said Joel Ario, who ran the office in the Department of Health and Human Services devoted to building the exchanges after the law passed. He is now a managing director at Manatt Health Solutions, a consulting firm that is assisting several states.

In the first year of operation, three state exchanges — Nevada, New Mexico and Oregon — had technology failures so profound that they handed the bulk of their operations to the federal government. Other states managed to rebound from a troublesome first year by rebuilding their systems, but only with substantial effort and expense. Both Massachusetts and Maryland essentially started from scratch in 2015.

As my colleague Abby Goodnough reported this month, state struggles continue. The Hawaii exchange is collapsing, while Vermont’s looks shaky. Even some exchanges that have performed relatively well — including Washington and Minnesota — are experiencing substantial information technology problems. And the expense of managing an exchange is also climbing in many places as federal start-up funding diminishes. The Washington Post reported in May that nearly half of the states are suffering from financial difficulties.

“There is no new money now to build new infrastructure, and there are no grants available to fix these systems if they’re struggling,” said Heather Howard, the director of the State Health Reform Assistance Network at Princeton University, which was set up to advise states on exchange building. “So the only path forward may be to use HealthCare.gov.”

Lawrence Miller, chief of health care reform in Vermont, who reports to the governor, said his state was still working hard to try to repair its exchange architecture — and he hopes he succeeds. But he said he also took some solace in the court’s decision.

“It’s now a viable alternative,” he said of HealthCare.gov. “Still, not a good alternative. But we’re certainly very glad that that question has been resolved the way it is.”

Ms. Howard says the future for many states may be something along the lines of the New Mexico system. That state performs some of the functions envisioned for a state exchange, including selecting the health plans that will be sold on the state’s marketplace, and collecting fees from insurers. But it uses the federal government’s HealthCare.gov infrastructure to determine people’s eligibility for insurance and sign them up for health plans.

The National Academy for State Health Policy, an organization closely watched by state officials, recently published a paper describing how states can transition to the New Mexico model. People working closely with state governments say they expect the template to become increasingly popular.

If the court had ruled for the health law’s challengers, we would have seen more states adopting the state-based model to preserve subsidies for their residents. Now that the government has won, movement is likely to be in the other direction.

Correction:

An article on Friday about the future of state-based health exchanges misstated part of the name of an organization that studied New Mexico’s health care model. It is the National Academy for State Health Policy, not the National Association of State Health Policy.